Hang Seng Index Long-Term: Rear-View Mirror!

Here's a long term chart of the Hang Seng Index to blow your mind!

 

Notice the trendline connecting 1998 low to the 2003 low. Very accurately predicted the 2009 reversal!

Ahhh... the beauty of trendlines & the agony of hindsight!

S&P500 Short-Term: Relentless!

Relentless upward action - this market's on a tear! Last update at 1153, called for consolidation before any move higher. We did dip to 1141 (breaking through the blue channel), and promptly resumed the climb higher, setting up even more overbought conditions. Once again, showing strength, keeping its distance from the uptrendlines. Running out of adjectives here - super dooper party pooper overbought!

5th wave up

Once again, not the place to go long this market. Why? From 1086, we seemed to have traced 5 waves up, so this uptrend(the 5th) should terminate soon, and at least a minimal reversal is due to correct the 5-wave uptrend. Not expecting any outright crash - lotsa support at the 1150 (prev high) and the orange uptrendline.

Target = 1180?

Roughly measured, the target of the Inverse Head & Shoulders identified in earlier posts is around 1180. Althought not immediately possible, looks like the market insists on getting there. Other correlated targets to watch are Dow 10730, Hang Seng 22000, Shanghai 3200 (see World Markets Update). The Russell 2000 (RUT) however, is lagging this latest climb up - a hint of momentum slowing for sure.

Summary

Although bearish on the short-term picture, careful trying to plug this rising volcano (akin to catching a falling knife). Patience pays - let them prices move laterally towards the orange uptrendline and setup a reversal candle, and more importantly - always place stops!

I'll be watching asian market action for the clues described above. In the very short-term, we might see prices struggle upwards with increasing frequency of pullbacks. Hard place to make money, unless you're an agile daytrader. Remember the equinox - this week or early next week could still be significant!

All the best!

Gold & Recessions

Will be posting an update of the US Markets after watching today's action.

Meanwhile, one of the readers recently queried about the movement of Gold prices and its correlation with equities. Personally, i believe Gold is one of the hardest commodities to forecast using fundamentals. I was looking through some past research on Gold prices by Elliott Wave International, that might help. The article is attached below. Enjoy!

Gold, the Dow, T-Notes: Which Does Best
During Recessions?

By Susan C. Walker, Elliot Wave International
April 11, 2008

Each year, the NCAA college basketball tournament winnows its starting field of 64 teams to the Final Four teams who play for a chance to become the national champion. Congratulations to the University of Kansas and the University of Tennessee, this year's men's and women's basketball champions.The structure of the NCAA tournament got me to thinking. Wouldn't it be great if we could set up brackets for our own investments the same way – start with 64 equities, bonds, mutual funds, commodity futures, metals, etc. Then let them duke it out against one another to see which ones emerge as the "Investment Final Four"?

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Click here to download a free 5-page report from Elliott Wave International with even more information on which investment does best during recessions. The report, excerpted from Bob Prechter's Elliott Wave Theorist, includes in-depth historical analysis and six eye-opening tables.

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Since most of us have neither the time nor the money to act as our own version of the NCAA (which might stand for the "National Coordinator of Asset Allocation"), it's worth knowing that Bob Prechter of Elliott Wave International has already set his mind to the task. He has specifically explored which investments do best in times of recession and which do best during economic expansions. But instead of starting with a field of 64 investments, he researched the three most popular investments – gold, the Dow, and Treasury bonds.
We can call them the Treasured Three, rather than the Final Four.

Gold and Recessions

Since economists and even Ben Bernanke, chairman of the Federal Reserve, now admit that it looks like the U.S. economy has entered a recession, many people may wonder whether they need to change the mix of their investments. In particular, as some prices keep going up – notably for food and gas – the threat of inflation makes people more interested in gold as an investment, since it's usually seen as a bulwark
against monetary inflation. It is this conventional wisdom that piqued Prechter's curiosity. He wanted to find out whether it would hold up to a reality test. As he writes in The Elliott Wave Theorist, "I have often read, 'Gold always goes up in recessions and depressions.' Is it true? Should you own gold because you think the economy is tanking? Whenever we hear some claim like this, we always do the same thing: We look at the data."

So he and another Elliott wave analyst ran the numbers, reviewing the behavior of these three key investments during recessions following World War II, from February 1945 through November
2001. This is what they learned:

Gold was not the best investment during recessions
in terms of total return.

The winner of this tournament was actually Treasury Notes,
which had a total return of 9.96%. In contrast, gold had a
total return of 8.80%, and the Dow came in at 6.89%. But that's
not all – once they figured in the transaction costs
for each investment (at a 2008 level), gold fell from second
to third place as a worthwhile investment during recessions.
The total returns with transaction costs came out this way:

1. T-Notes	9.82%
2. Dow	6.85%
3. Gold	4.80%

This result turns conventional wisdom on its head. It's also
worth being aware of as you invest in 2008. Here's how Prechter
sums up the results:

The Best Investment During Recessions

The most important question, however, is not whether the
Dow beat gold or vice versa but whether making either investment
would have been better than taking no risk at all. Table
3 [see
free report provided by Elliott Wave International]
shows that ten-year Treasury notes beat both gold and the
Dow during recessions since 1945, and they did so far
more reliably. T-notes provided a capital gain in 10
of the 11 recessions, and of course they provided interest
income during all of them. And the transaction costs are
low….

So if you want to make money reliably and safely
during recessions and depression, you should own bonds whose
issuers will remain fully reliable debtors throughout the
contraction. Of course, as Conquer the Crash [Editor's
note: Bob Prechter's best-selling business book] makes abundantly
clear, finding such bonds in this depression, which will
be the deepest in 300 years, will not be easy. Conquer
the Crash forecast that in this depression most bonds
will go down and many will go to zero. This process has
already begun. This time around, you have to follow the
suggestions in that book to make your debt investment work.
[The Elliott Wave Theorist, March 2008]

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.

S&P500 short-term: Upward Momentum weakens

SPX still in the uptrend channel, and still very overbought on the daily charts. Just judging by the frequency of its visits to the blue channel line, we can observe upward momentum weakening. Any correction here has support in the 1130 area, and wherever price meets lower orange channel line. Short-term, higher prices towards 1200 are not impossible, provided we consolidate some.

Very Short-Term

On Friday, price hit 1153 - one of my target areas for a possible turn (refer to earlier posts). A sharp, but small drop followed, and the rest of the session went sideways. There could be a re-test of 1153 on Monday, but i am expecting more consolidation in time or price before any moves higher. If we do continue higher, the eventual trendline break could be dramatic, due to super overbought conditions.

Finish line?

The tortoise has reached the finish line. Will it rest here? Oh wait, we forgot about its older cousin - the Dow Jones Industrials:

On Friday, encouraged by the SPX, it was pulling itself together for the final dash - outperforming by a bit. If the markets do head higher, watch out when Dow kisses 10730, especially if you are long - might wanna trade for some shorts.

Asian Connection

Several asian markets are executing their Inverse Head & Shoulders patterns, and are a few hops away from ideal targets. As correlations in the very short-term have been high, watch these asian levels for a potential turn in US markets. HangSeng - 22000 & Shanghai - 3200

Astrological Connection

Next week is going to be extra special for 'believers' - the Spring Equinox falls around March 21st and has often coincided roughly with some turning points in the market. So bears around the world, be sure to tip the Heavens, if your wish comes true! ;)

All the best for the week ahead!

Straits Times Index & SGX Update

Straits Times Index (STI)

Since the last World Markets Update calling for an upwards breakout, STI has moved up almost 5%. The suggested target was 2880 & a reversal. Friday's action saw it close at 2881.

Will it go all the way to the highs of 2950? Nothing is impossible in the world of stock markets, but we can expect some sorta struggle around here. Will it make new highs and keep going upwards? Unlikely, as the fall from 2950 was in 5-waves. Expecting consolidation next week before anymore big moves.

Singapore Exchange (SGX)

The barometer stock! Since my last post SGX short-term: Ready for liftoff! at 7.60, prices have moved up handsomely on relatively higher volume to a high of 7.88.

So what's next? 7.9 area is stiff resistance, so expecting a struggle here. Will we go all the way to the upper trend channel? Watch the consolidation. If it moves sideways and not sharply downwards, a move higher becomes likely. A break below channel line however, makes a move towards 6.8 more likely.

SGX - A Barometer or a Warrant?

Now for the fun part. Those following my posts have observed, that i refer to SGX as a barometer for the financial weather of Singapore. Simply because, activity on Singapore stock market is directly proportional to the growth of the economy. Higher activity is higher revenue for SGX, and vice versa. Also, have a look at the chart below:

SGX tends to act like a leveraged warrant on the STI - at least in the recent past. Based on that observation, might be fun to keep this chart handy. SGX has crossed below STI for now, whatever that means!

Summary

There might be upside left for STI & SGX, but in the very short-term expecting consolidation. I will present an elliott wave review of SGX at a future date, once there's enough evidence.

Good luck, and your views are always welcome!

CAUTION: Refer to the last part of this earlier post, for caveats as to why technical analysis on SGX might not always be reliable.